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Chapter 4 - UK Part IV - Confiscating the Proceeds of Crime

This is a chapter from the Bloomsbury Professional book International Guide to Money Laundering Law and Practice, 3rd Edition, which provides a detailed insight into the background of money laundering operations. At a time of unabated governmental interest in anti-money laundering and counter-terrorist financing (AML/CTF) initiatives, the book clearly explains the anti-money laundering laws and regulations in key global financial centres throughout the world, including new developing financial and business centres. Each chapter is contributed by a local industry expert and offers an authoritative country-specific overview of the legislation and regulation relating to money laundering in that jurisdiction, including compliance, accounting and confiscation issues. Chapters on European jurisdictions take into account the changes brought about by the Third Money Laundering Directive and the chapter on the practical implementation of UK regulations covers the move to a more risk based approach.

This chapter and the table of contents are FREE to view, as a sample of the book's contents. To view the other chapters, please subscribe to Books online.

Introduction

4.1 The simple statutory objective underlying the UK's Proceeds of Crime Act 2002 ('POCA') is to separate the criminal from the proceeds of his crime. As the then Prime Minister Tony Blair explained in the Cabinet Office report published prior to the legislation:

'leaving illegal assets in the hands of criminals damages society. First, these assets can be used to fund further criminal activity, leading to a cycle of crime that plagues communities. Second, arrest and conviction are not enough to clamp down on crime; they leave criminals free to return to their illegal enterprises, or even to continue their 'businesses' from prison. And third, it simply is not right in modern Britain that millions of law-abiding people work hard to earn a living, whilst a few live handsomely off the profits of crime'.[1]

4.2 It was against this background that POCA established a new approach to the confiscation of criminal assets, focusing on a more draconian regime to be applied following criminal conviction and the introduction of an alternative route to permit the commencement of civil proceedings in the High Court to compel the disgorgement of criminal property from any person who is holding it.

4.3 The judiciary has supported Parliament in its effort to place asset confiscation at the centre of criminal justice policy where cases of acquisitive crime are concerned. Lord Chief Justice Woolf expressed the judicial approach succinctly in a seminal case in 2001 in the following terms:

'If offenders are likely to lose their ill-gotten benefits, then this in itself will be a significant deterrent to the commission of further offences … Justice requires that the profits made by the commission of those especially anti-social offences should be confiscated … It is notoriously difficult to combat the traffickers' activities and the dangers that they create for society provide a justification for action out of the ordinary … Under the legislation, the object of confiscation is not punishment but the forfeiture of an illicit profit'.[2]

4.4 Initially, the confiscation regime had been foreshadowed by concerns expressed in the House of Lords that the existing powers for disgorging the proceeds of drug trafficking of the whole of their ill-gotten gains or the total profits of their unlawful enterprises.[3] In 1984 a committee under the chairmanship of Mr Justice Hodgson recommended that courts should have power to make confiscation orders but that only the net profits of offending should be confiscated.[4] Legislation followed during the 1980's and 1990's in the shape of the Drug Trafficking Offences Act 1986, the Criminal Justice Act 1988, the Criminal Justice (International Co-operation) Act 1990, the Criminal Justice Act 1993, the Drug Trafficking Act 1994 and the Proceeds of Crime Act 1995 and the Proceeds of Crime Act 2002 ('POCA 2002').

4.5 These statutes gave effect to the obligations of the United Kingdom under the Vienna Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in 1988 and the Council of Europe Convention on the Laundering, Search, Seizure and Confiscation of the Proceeds of Crime in 1990. Under Article 2 of the Convention each signatory country became obligated to adopt such legislative and other measures as may be necessary to enable it to confiscate 'instrumentalities' and proceeds or property the value of which corresponded to such proceeds. 'Instrumentalities' was defined to mean 'any property used or intended to be used, in any manner, wholly or in part, to commit a criminal offence or criminal offences'.

4.6 With the emergence of significant cross-border international criminal activity, POCA 2002 contains provisions enabling the UK courts to afford mutual legal assistance to foreign countries where orders freezing assets are required and also to assist in giving effect to foreign confiscation orders where assets are held in the UK. This aspect of the legislation will become increasingly important in future years.

Restraint

Purpose

4.7 A restraint order prohibits a defendant from 'dealing with' any realisable property that is held by him and potentially liable for confiscation. It is exercised to enable the freezing of a defendant's property equal to the value of realisable property available for satisfying any confiscation order that has been, or may be.[5] In addition, the court may make any order it believes is appropriate to ensure the effectiveness of the restraining order,[6] such as asset disclosure or asset repatriation orders.[7] Where a confiscation order has not been made, the purpose of the restraint order to ensure there is no diminution in the value of realisable property, for example by the defendant dissipating his assets.[8]

4.8 Restraint orders are not international and can only be made in respect of property in England and Wales.[9] However, orders requiring the disclosure of assets can include assets held abroad. Likewise, repatriation orders may apply to property located outside, as well as inside, the jurisdiction.[10]

4.9 Realisable property is defined as any free property held by the defendant or the recipient of a tainted gift.[11] Property includes all forms of property: money, real or personal property and any intangible or incorporeal property.[12] Property is held, obtained or transferred to a person if he holds, obtains, is transferred in interest in it.[13]

Transitional provisions

4.10 The Proceeds of Crime Act 2002 (Commencement No 4, Transitional Provisions and Savings) Order 2003[14] brought the restraint and confiscation provisions of POCA 2002 into effect on 24 March 2003. It was held in RCPO v Hill[15] that the test to be applied is whether an investigation has begun into an offence allegedly committed after 24 March 2003 and is an offence in respect of which a confiscation order could, following conviction, be made. The test is applied at the time when the application for restraint is made and not when the investigation begins. The fact that an investigating authority was also investigating the commission of a criminal offence that allegedly occurred before 24 March 2003 does not deprive the court of jurisdiction under POCA 2002 provided that at least one of the offences under investigation was committed after that date. Since money laundering is an offence which can be committed at any time when a person is holding the proceeds of crime, the decision in RCPO v Hill enables an investigation authority to seek a restraint order under POCA 2002 in almost any case where the proceeds of acquisitive crime have been retained by the defendant.

General

4.11 The Crown Court may make a restraint order when any one of the five conditions set out in POCA 2002, s 40 is satisfied.[16] Typically an investigating authority will be able to establish that a criminal investigation has been started or proceedings for an offence have been started and not concluded.[17] In order for either condition to be fulfilled there must also be reasonable cause to believe that the alleged offender has benefited from his conduct.[18] In a significant departure from the former position, under s 40(2) there is no requirement for the defendant to have been charged with any offence for a restraint order to be granted.

4.12 The application procedure for instigating a restraint order can be found in Parts 57 and 59 of the Criminal Procedure Rules.[19] Part 59 sets out, in detail, the rules applicable in restraint proceedings. The application may only be made by the prosecutor or an accredited financial advisor.[20] It can be made without notice and must be set out in writing and supported by witness statements setting out the grounds of the application.[21] Sections 2 to 4 of the Civil Evidence Act 1995 apply to restraint proceedings in the same way that they apply to civil proceedings, which means that hearsay evidence may be adduced in support of the application.[22]

Exceptions

4.13 A restraint order can be made subject to certain exceptions. First, it can make provision for reasonable living and legal expenses.[23] Secondly, it can make provision for allowing the defendant to carry on any trade, business, profession or occupation.[24] However, the provisions specifically exclude a defendant from incurring any legal expenses relating to the commission of the alleged offence which brought about the restraint order.[25] This includes any legal expenses the defendant may incur trying to vary or discharge the restraint order.[26] As was stated in In Re S,[27] Parliament intended to make public funding available for such actions. In line with this, POCA 2002, Sch 11, para 46(4) amends the Access to Justice Act 1999 to make public funding available in relation to restraint and confiscation proceedings.

Variations and discharge

4.14 An application to discharge or vary a restraint order may be made by the person who applied for the order or any person affected by it.[28] If the condition, which originally satisfied the making of the restraint order, was that the proceedings were started or an application was made, the court must discharge the order on the conclusion of the proceedings or application.[29] Similarly, if the condition was that an investigation was started or an application to start one was to be made, the court must discharge the order if, within a reasonable time, proceedings for the offence are not started or an application is not made.[30] Where there is an allegation that a restraint order has been breached in contempt of court, the Crown Court has jurisdiction to try the allegation.[31]

Appeals and redress

4.15 Appeals from the decision of the Crown Court may be made to the Court of Appeal by the person who applied for the order or any person affected by it.[32] On appeal, the Court of Appeal may confirm the decision or make any order it believes is appropriate.[33] A further appeal, by any person who was party to the proceedings in the Court of Appeal, lies to the House of Lords.[34] Similarly the House of Lords may either confirm the decision of the Court of Appeal or make any order it believes is appropriate.[35]

4.16 Generally, there is no redress from restraint orders. However, if there has been serious default by an investigating authority and the investigation would not have continued if the default had not occurred, then the Crown Court may order the payment of such compensation as it believes just.[36]

4.17 There is a duty resting on the prosecutor to disclose to the court all material facts at the time when the application for a restraint order is made. This is because the application is usually made ex parte and it is important for the court to be told of any factors which might militate against making a restraint order on the facts of the case before it. However, where material non-disclosure is discovered from an ex parte application for a restraint order, this will not necessarily result in the order being dismissed. The proper approach is for the court to consider whether or not the public interest calls for the order to stand once the true position is known. In order to provide a material ground for discharging the restraining order, it must be shown that the non-disclosure was something that would have affected the judge's original decision on the application.[37]

Third parties

4.18 A restraint order can restrain any 'specified person'[38] from dealing with the realisable property including spouses, business partners or recipients of tainted gifts.[39] These third parties will be bound by any restraint order made. However, the value of the proprietary interests of third parties is also protected. The Crown Court's duty to preserve the value of a third party's interests in the realisable property overrides any duty it has to preserve assets for a current or future confiscation order.[40]

4.19 The nature of the interest protected will differ depending on whether the property is land or any other type of property. If the property is land, the right must be an equitable interest or power in order to be protected.[41] This means that rights in relation to the property, such as the right of occupation are not protected. However, where a restraint order has been made, no distress may be levied against any property without leave of the Crown Court, which also has the power to stay the proceedings if it sees fit.[42] If the property is personal or intangible property then all rights, including the right to possession, are protected.[43] Any third party that deals with the property, risks interfering with justice and will be found in contempt of court, whether or not the dealing involves any dissipation of the assets in question, or growth of them (as may be the case then they are put in a high-interest banking account).[44] Where the property is held in a company or a trust, the rules are the same as those for confiscation orders.

Investigation orders

4.20 Investigation Orders under Part 8 of POCA 2002 can be obtained in confiscation investigations, money laundering investigations and civil recovery investigations. A confiscation investigation is an investigation into whether a person has benefited from his criminal conduct, or the extent or whereabouts of his benefit.[45] A civil recovery investigation is an investigation into whether property or associated property is recoverable, who holds it and its extent and whereabouts.[46] A money laundering investigation is an investigation into whether a person has committed a money laundering offence.[47]

4.21 There are five investigation powers which were created in POCA 2002: production order, search and seizure warrant, customer information order, account monitoring order and disclosure order. These can only be obtained by appropriate officers, which vary depending on which investigation is taking place.[48] For a confiscation investigation, it must be a member of the staff of Serious Organised Crime Agency (SOCA), an accredited financial investigator, a constable or a customs officer.[49] For a civil recovery investigation, the appropriate officers are a member of SOCA's staff or a relevant Director.[50] In relation to a money laundering investigation, the appropriate officers are an accredited financial investigator, a constable or a customs officer.[51]

4.22 The necessary requirements for making an investigative order are:

(a) Reasonable grounds for suspecting that the person specified in the application has benefited from criminal conduct or committed a money laundering offence, or the property specified is recoverable and the specified person holds some or all of the property.

(b) Reasonable grounds for believing that the material which may be provided in compliance with the orders is likely to be of substantial value to the investigation.

(c) Reasonable grounds for believing that it is in the public interest for the information to be provided having regard to the benefit likely to accrue to the investigation if the information is obtained.

Production orders

4.23 A production order requires the person specified, as appearing to be in possession or control of material, to produce it to an appropriate officer for him to take away, or give the appropriate officer access to the material.[52] The order will be granted if it can be shown that the person specified in the application is in possession or control of the material.[53]

4.24 An application to obtain a production order must be made to a Crown Court judge. The investigating authority can chose whether to serve notice on the party holding the material (normally a bank or financial institution), or apply to the Crown Court ex parte.[54] Once an order has been made, any person affected by it may apply to discharge it or vary the terms on which it has been granted.[55] There are provisions in POCA 2002 that confer power on the Crown Court to require entry to premises in order to obtain access to material and material held on computer.[56] A production order cannot require access to material which is protected on the grounds of legal professional privilege, although the privilege disappears in cases where the material was created in furtherance of a criminal enterprise.[57]

Search and seizure

4.25 A search and seizure warrant is a warrant authorising an appropriate person to enter and search the premises specified and seize and retain any material found there which is likely to be of substantial value to the investigation for the purposes of which the application is made.[58] Search and seizure warrants do not give the right to seize any privileged material.[59]

4.26 Search and seizure warrants are used when it would not be appropriate to make a production order because it is not practicable to communicate with the person against whom the production order could be made and the investigation might be seriously prejudiced unless an appropriate person is able to secure immediate access to the material.[60] They can only be granted where the criteria for obtaining a production order have first been satisfied.[61]

4.27 Banks and financial institutions are unlikely to receive search and seizure warrants except in the unusual circumstance where the investigating authority believes that a member of staff has participated with the customer in the commission of a criminal offence or the laundering of its proceeds.

Customer information order

4.28 A customer information order requires that a specified financial institution must, on being given notice in writing given by an appropriate officer, provide any such customer information as it has relating to the person specified in the application.[62] The requirements for making a customer information order are set out in POCA 2002, s 365 and are similar to a production order, except unlike an application for a production order, the investigating authority does not need to identify the particular material to be produced, except to state that it is 'customer information'.

4.29 'Financial institution' means a person carrying on a business in the regulated sector.[63] A 'business in the regulated sector' includes all banks, building societies, providers of financial services, accountants, estate agents, casinos, solicitors participating in any financial or real property transactions and dealers in high value goods accepting cash in excess of €15 000 in total.[64]

4.30 'Customer information' is information about whether a person holds, or has held any accounts at the financial institution and information surrounding that account including all personal details.[65] A 'person' is defined to include limited liability partnerships, companies and organisations, including those formed outside the UK.

4.31 A financial institution commits an offence if, without reasonable excuse, it fails to comply with the requirements under a customer information order or makes a statement, in purported compliance, either recklessly or intentionally, which is false or misleading about a material particular.[66] Such offences can be tried summarily or on indictment and are punishable with fines.[67]

Account monitoring orders

4.32 An account monitoring order requires a financial institution to provide specified account information to an appropriate officer for a period not exceeding 90 days.[68] 'Account information' is information relating to an account held at the financial institution by the specified person, whether held solely or jointly with another.[69] The requirements for Account Monitoring orders are set out in s 371 and paragraph 16 above.

Disclosure orders

4.33 Disclosure orders authorise an appropriate officer to give notice, in writing, to anyone they consider to have relevant information to the investigation to disclose it. The order can require them to answer questions, provide information and produce documents by a certain time and in a certain manner.[70] The substantial requirements for a disclosure order are set out in POCA 2002,
s 358 and paragraph 16 above.

4.34 A person who fails to comply with a disclosure order commits an offence and, if found guilty will be subject to a term of imprisonment not exceeding six months, a fine, or both.[71] Similarly a person commits an offence if, in purported compliance with the order, they make statements, intentionally or recklessly, which are false or misleading in a material particular.[72] Where a person makes a statement, in response to a disclosure order, it may not be used as evidence against him in criminal proceedings except in respect of confiscation proceedings, proceedings for contempt of court or on a prosecution for perjury.[73]

Code of Practice

4.35 Under POCA 2002, s 377, the Secretary of State was required to prepare a Code of Practice as to the exercise of all functions under POCA 2002, Part 8 (Investigations). The Code of Practice Issued Under Section 377 of POCA came into force on 1 April 2008.[74] Any person, covered by the Code, and who fails to comply with it, is liable to criminal or civil proceedings. Persons covered by the Code are all those who either apply for or execute any of the five powers of investigation found in Part 8.

4.36 Anytime a person uses powers of investigation, they should refer first to the Code to see what the requirements for compliance are. The powers of investigation involve a significant interference with the privacy of those who are affected and there is an obligation upon those operating the powers to ensure that the application for the order is fully and clearly justified. In particular, the appropriate officer must consider at every stage whether the necessary objective can be achieved by a less intrusive means. The test is directed at avoiding an infringement of the right of privacy guaranteed by Article 8 of the European Convention on Human Rights ('ECHR') and a test of proportionality must be applied by the court when granting any of the investigation powers.

Confiscation

Introduction

4.37 Confiscation orders are made by the Crown Court and impose on a defendant the obligation to pay a sum of money that reflects the benefit he received from his criminal conduct. There are two conditions for the making of a confiscation order. The first condition is that either the defendant has been convicted of an offence in proceedings before the Crown Court, or he is committed to the Crown Court for sentence in respect of an offence under s 3, 4 or 6 of the Powers of Criminal Courts (Sentencing) Act 2000 or POCA 2002,
s 70.[75] The second condition is that the prosecutor asks the court to proceed under this section or the court believes it is appropriate to do so.[76]

4.38 In R v Morgan and Bygrave,[77] the Court of Appeal held that there may be rare circumstances where it might amount to an abuse of process for the Crown to seek a confiscation order which would result in an oppressive order to pay up to double the full restitution which the defendant has made or is willing immediately to make, and which would thus deter him from making. The specified circumstances are that:

(a) the defendant's crimes are limited to offences causing loss to one or more identifiable losers;

(b) his benefits are limited to those crimes;

(c) the loser has neither brought nor intends to bring any civil proceedings to recover the loss; but

(d) the defendant either has repaid the loser or stands ready willing and able immediately to repay him the full amount of the loss.

4.39 The Court also indicated that the making of a confiscation order would not be oppressive in the following circumstances:

(a) where the defendant has obtained a benefit beyond the loss of the victim (for example by investing the money profitably);

(b) where the Crown alleges that the statutory assumptions ought to be applied to demonstrate that the defendant has obtained a benefit beyond the loss inflicted upon the victim of the presently charged offences;

(c) where, although repayment in full is offered, it is uncertain that it will be accomplished.

4.40 In England, either the prosecution or the court may apply for or make a confiscation order.[78] However, in Scotland, only the prosecutor may bring proceedings for a confiscation order; the court has no discretion to do so.[79]

4.41 Once these preliminary conditions are satisfied the court must follow the mandatory requirements set out at POCA 2002, s 6(4). First, it must decide whether the defendant has a criminal lifestyle.[80] If it decides that he has a criminal lifestyle it must then decide whether he has benefited from his general criminal conduct.[81] If it decides that he does not have a criminal lifestyle it must decide whether he has benefited from his particular criminal conduct.[82] If the court decides that the defendant has benefited from the relevant conduct, whether general or particular, it must decide the amount recoverable and make an order for that amount.[83]

Commencement provision

4.42 Under the Proceeds of Crime Act 2002 (Commencement No 5, Transitional Provisions, Savings and Amendment) Order 2003[84] s 6 of the POCA 2002 applies only where the offences in question were committed after 24 March 2003.[85] If the criminal offence is a continuing one and began before 24 March 2003, the old law will apply. Typically, this problem arises in cases involving an allegation of conspiracy. If the conspiracy is charged as having been committed between dates on either side of 24 March 2003, POCA 2002 will not apply even though the overt acts may have been committed after that date.[86]

Postponement

4.43 The court may either proceed with a confiscation order before it sentences a defendant or postpone its proceedings for up to two years, and longer in exceptional circumstances.[87] Either the prosecution and defence may apply for a postponement or the court may make it of its own motion.[88] If the proceedings are suspended the judge is not required to set the date when the substantive hearing is to begin but merely state when the proceedings will next be listed.[89] The two year period commences at the date of conviction[90] and can be extended on application by the defendant, prosecutor or the court itself, providing the original period of the postponement has not expired. If the proceedings are postponed for a period, and an application to extend the period is made before it ends, the application to extend may be granted even after the period ends.[91]

4.44 If a court decides to postpone confiscation proceedings it may still proceed to sentence the defendant for the offence.[92] However, any sentence during the postponement period must not impose a fine or order the payment of compensation.[93]

Procedure for making the order

4.45 Having decided to consider whether to make a confiscation order, the court must first decide whether the defendant has benefited from his criminality.

Benefit

4.46 In the first instance the court will consider whether the case is one in which POCA deems the defendant to have received benefit from his criminal activities. This will occur where the defendant is said to have a criminal lifestyle.

4.47 If the court that the defendant has criminal lifestyle it proceeds to decide whether the defendant has benefited from his general criminal conduct.[94]

4.48 If the court decides that the defendant does not have a criminal lifestyle it must decide whether he has benefited from his particular criminal conduct.[95]

Recoverable amount

4.49 If the answer to these questions is in the affirmative, the court continues to consider the second part of the exercise and determine the recoverable amount.

Confiscation order

4.50 A confiscation order will be made in the amount of the benefit received by the defendant (deemed or actual, depending upon the circumstances) or if the recoverable amount is less than the benefit, in the sum of the recoverable amount.[96]

Criminal lifestyle

4.51 The test for criminal lifestyle is pivotal to the operation of POCA 2002 because it determines whether or not a defendant is subject to the making of a number of draconian assumptions about his assets when seeking to determine the benefit he has received from his general criminal conduct. The idea of applying a series of statutory assumptions where a defendant has a criminal lifestyle is predicated on the notion that a defendant who lives off crime should be required to account for his assets, with these assets being confiscated to the extent that the defendant is unable to account for their lawful origin. The criminal lifestyle criteria were designed to identify defendants who live off the proceeds of crime.[97]

4.52 A defendant is considered to have a criminal lifestyle if one of the following three criteria are satisfied:

(a) the offence for which he has been convicted is one of those specified in Schedule 2, for example money laundering, people trafficking and arms trafficking;[98] or

(b) the offence for which he has been convicted constitutes conduct forming part of a course of criminal activity; [99] or

(c) the offence for which he has been convicted was committed over a period of at least six months and the defendant has benefited from the conduct which constitutes the offence.[100]

4.53 Conduct forms part of a 'course of criminal activity' if the defendant has benefited from the conduct and either:

(a) in the proceedings in which he was convicted, he was also convicted of three or more other offences, each constituting conduct from which he has benefited;[101] or

(b) in the period of six years, ending with the day when those proceedings were started, he was convicted on at least two separate occasions of an offence constituting conduct from which he has benefited.[102]

4.54 The benefit necessary for an offence to qualify to be taken into account must not be less than £5,000.[103] In determining the relevant benefit, the court can include offences which have or will be taken into consideration.[104]

The statutory assumptions

4.55 If the court decides the defendant has a criminal lifestyle, it must make four assumptions when determining the amount by which he has benefited from his general criminal conduct, unless the application of these assumptions can be shown by the defendant to be incorrect or would lead to him suffering a serious risk of injustice.[105] The onus is on the defendant to establish that the application of any one of the four assumptions would be incorrect or lead to injustice.[106]

4.56 In the case of R v Benjafield[107] Lord Chief Justice Woolf recognised that it was incumbent upon the court not to make a confiscation order where there is a serious risk of injustice. As he explained:

'it is very much a matter of personal judgment as to whether a proper balance has been struck between the conflicting interests. Into the balance there must be placed the interests of the defendant as against the interests of the public that those who have offended should not profit from their offending and should not use their criminal conduct to fund further offending.'[108]

The risk of injustice must relate to the making of the assumption and not the making of the confiscation order. As such, the 'serious injustice' provision cannot be used discretionarily by the court 'to mitigate the intentionally harsh consequences of a confiscation order'.[109]

4.57 The first assumption is that any property transferred to the defendant at any time after the relevant day was obtained by him as a result of his criminal conduct.[110] The 'relevant day' is the day six years preceding the earliest date of commencement of proceedings against the defendant.[111]

4.58 The second assumption is that any property held by the defendant at any time after the date of conviction was obtained by him as a result of his criminal conduct.[112]

4.59 The third assumption is that any expenditure incurred by the defendant at any time after the relevant day was met from property obtained by him as a result of his criminal conduct.[113]

4.60 The fourth assumption is that, for the purpose of valuing any property obtained, the defendant obtained it free of any other interests in it.[114]

4.61 The draconian nature of these assumptions was demonstrated in the case of R v Wilkes[115] where the statutory assumptions were applied and a confiscation order was made even though the defendant had not retained any benefit from the criminal conduct. Under the old law, the court had discretion not make a confiscation order. For example, in R v Glatt[116] this discretion was exercised where the monies obtained dishonestly had been recovered and the defendant had not benefited personally from the criminal conduct. In a significant move away from the old law, under POCA 2002 this discretion no longer exists and the statutory assumptions have to be applied.

4.62 The European Court of Human Rights ('ECtHR') held in Phillips v UK[117] that the confiscation provisions were compatible with the European Convention of Human Rights. The Court was influenced by the fact that confiscation related to the sentencing part of proceedings rather than conviction, and that under the UK procedure it was open to the applicant to rebut the statutory assumptions by adducing evidence to show that the property in question was legitimately obtained.

General criminal conduct and particular criminal conduct

4.63 The phrase 'general criminal conduct' refers to all the criminal conduct of the defendant and it is immaterial whether or not the conduct occurred before of after the passing of POCA 2002. Benefit from general criminal conduct will include all property constituting a benefit from that conduct.[118] The phrase 'particular criminal conduct' refers to the defendant's criminal conduct which constitutes the offence concerned or any offences in the same proceedings or that will be taken into consideration when deciding the defendant's sentence for the offence.[119]

Benefit

4.64 A defendant can benefit from criminal conduct in one of two ways. First, he benefits if he obtains property as a result of or in connection with the conduct.[120] Secondly, he benefits if he obtains a pecuniary advantage, as a result of the conduct. In this situation he is treated as having obtained a sum of money equal to the value of the pecuniary advantage.[121] Whether a defendant has benefited is a question which must be answered objectively, the defendant's intention being irrelevant.[122]

4.65 In a trilogy of cases, (R v May[123], R v Jennings[124] and R v Green[125]), the House of Lords explored at length the notion of benefit and how it applies to joint defendants in criminal proceedings. In determining whether a defendant has obtained property or pecuniary advantage and, if so, the value of such property or pecuniary advantage, the court will apply ordinary common law principles governing property entitlement and ownership.[126]

'The rationale of the confiscation regime is that the defendant is deprived of what he has gained or its equivalent. He cannot, and should not, be deprived of what he has never obtained or its equivalent, because that is a fine. This must ordinarily mean that he has obtained property so as to own it.'[127]

4.66 In deciding whether a defendant has gained a benefit, benefit is treated as the total amount obtained (though not necessarily retained). A defendant ordinarily obtains property if, in law, he owns it, whether alone or jointly. This will ordinarily connote a power of disposition or control as where a person directs payment or conveyance of property to someone else. As such, mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property.[128] This understanding was developed by the Court of Appeal in R v Allpress[129] where the Court held that there was no justification for placing money laundering cases into a special category of offences for the purposes of confiscation. Even a mere custodian of property had a limited interest in property and it was the role of the court to determine the value of that interest. There would be cases where a defendant's only role in relation to property connected with his criminal conduct, whether in the form of cash or otherwise, was to act as a courier on behalf of another. In this event, such property would not constitute property obtained by him for the purposes of the confiscation legislation. But there would be other cases where, for example, a dishonest money changer had been paid £1 million and had agreed to transfer an equivalent amount to an offshore account in a different currency. In this instance the £1 million received by the money changer would be treated as money obtained by him because unlike the courier who merely carried money, the money changer acquired a thing in action which amounted to an interest in property capable of valuation in an objective way.

4.67 Where property is held by more than one defendant it is jointly held, with the value of each defendant's reward being the whole amount. In R v May the House of Lords also confirmed that 'the benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses or any amounts payable to co-conspirators'.[130]

4.68 'Pecuniary advantage' has been given its ordinary and natural meaning, including when a debt is evaded and/or deferred.[131] A defendant ordinarily obtains a pecuniary advantage if inter alia he evades a liability to which he is personally subject.[132] The benefit is measured at the time it was received. In R v Smith,[133] applying R v Dimsey and Allen,[134] Lord Rodger said:

'It therefore makes no difference if, after he obtains it, the property is destroyed or damaged in a fire or is seized by customs officers: for confiscation order purposes the relevant value is still the value of the property to the offender when he obtained it. Subsequent events are to be ignored'.[135]

4.69 It is also irrelevant that a defendant could have obtained his advantage by honest means and yet chose to use criminal activity to do so.[136] Where a defendant is convicted of the fraudulent evasion of a duty, and confiscation proceedings are brought against him, the benefit received includes not just the evaded duty, but also the value of the relevant goods.[137] However, where the benefit is mixed with monies honestly received, and the confiscation order, for the full amount, is substantially larger than the actual benefit, the court may determine that the making of the confiscation order is oppressive and stay the confiscation proceedings.[138]

Assessing the amount recoverable

4.70 For the purposes of s 6 of POCA 2002 the amount recoverable is the amount equal to the defendant's benefit from the conduct concerned.[139] However, if the defendant shows that the available amount is less than the benefit, the recoverable amount is the available amount.[140] The available amount is an aggregate of the total of the values of all the free property held by the defendant and all the tainted gifts, minus the total amount payable in pursuance of obligations which have priority.[141] The burden of proof rests with the defendant to show that the recoverable amount is less than the defendant's benefit from the conduct concerned.

4.71 Placing the burden of proof on the defendant is not a breach of Article 6 of the European Convention of Human Rights. The ECtHR has held that it is not unreasonable to expect a defendant to explain what has happened to all the money shown by the prosecution to have been in his possession.[142] Further, the court has no power to make an order for any sum less than the benefit unless it is satisfied that at the time of making the confiscation order, the total value of the property held by the defendant is less than the value of his benefit.[143]

Property

4.73 The power to order a confiscation order must be exercised with a view to allowing a third party to retain or recover the value of any interest held by him.[145] This is particularly relevant to partners and their interest in the family home.

4.74 In order to decide whether or not a family home is realisable property the court first explores the common intention of the parties at the time of acquisition.[146] Where there is a temporal nexus between when the purchase price was paid, and the time when the crime was committed, the property becomes realisable.[147] It will be irrelevant that the intention of the parties was joint ownership where the partner's interest was funded by a gift from the defendant if the monies funding the gift were derived from the proceeds of crime. [148] There is no statutory discretion not to treat the family home as an available realisable asset where its acquisition has been tainted by the proceeds of crime. Any impact on innocent parties such as partners or children is irrelevant to the court's duty to make a confiscation order.[149]

4.75 Conversely, the court will recognise the genuineness of a beneficial interest where a partner contributed to the purchase of the property in circumstances where the partner's contribution pre-dated the criminal conduct or was entirely independent from it.[150] If it is shown that the partner has an untainted beneficial interest, there is no jurisdiction that would entitle the court to confiscate the partner's beneficial interest, even if the partner knew that the defendant's interest in the property was tainted.[151] Where the criminal investigation coincides with divorce proceedings and the matrimonial court orders the defendant to transfer his interest (or part of his interest) to his former spouse, the latter's interest will be protected from the confiscation regime but only where the ancillary relief order was made before the confiscation order is made. However, the court will not permit collusive agreements between dishonest former spouses.[152]

4.76 The compatibility of the confiscation regime with Article 8 of the European Convention of Human Rights which protects the right to privacy and family life was considered in R v Ahmed.[153] The Court of Appeal decided that any incompatibility with Article 8 could not be taken into account until the enforcement stage of the confiscation process.

'As the House of Lords explained in Re Norris [2001] 1 WLR 1389, this is the stage of the procedure in which third party's rights can not only be taken into account but resolved. If the court is asked at that stage to make an order for the sale of the matrimonial home, Article 8 rights are clearly engaged. It would be at that stage that the court will have to consider whether or not it would be proportionate to make an order selling the home in the circumstances of the particular case. That is a decision which can only be made on the facts at the time.'[154]

4.77 In Scotland the position is different. Section 98 of POCA 2002 deals with the disposal of the family home. It applies where a confiscation order has been made and the prosecutor has not satisfied the court that the person's interest in his family home has been acquired as a benefit of his criminal conduct.[155] If there is no consent to disposal by the persons with a right or interest in the family home, the court must have regard to the needs and resources of the spouse (or former spouse) and any child of the family before making a confiscation order on the family home.[156] 'Family home' is defined as any property in which the relevant person has, or had a right or interest, which is occupied as a residence by the person and their spouse and/or child.[157]

Third party interests

4.78 A third party is not permitted to intervene during the course of a confiscation hearing. Any representations by a third party must be made at the restraint stage, or the enforcement stage.[158] However, a defendant can assert that a third party has an interest in the property and therefore the property should not count as part of his available property. He is also entitled to call the third party as a witness. Further, the court is statutorily obliged to consider the interests of third parties when making a confiscation order.[159]

4.79 In Scotland the position is different. Before making any confiscation order, the court must take into account any representations made to it by any third party whom the court thinks is likely to be affected by the order.[160]

Prior obligations

4.80 An obligation has priority over a confiscation order if it is either:

(a) an obligation on the defendant to pay an amount due in respect of a fine or other order of a court which was imposed or made on conviction of an offence; or

(b) a sum which would be included among the preferential debts if the defendant's bankruptcy had commenced on the date of the confiscation order; or

(c) a preferential debt as per s 386 of the Insolvency Act 1986.[161] Examples can be found in Sch 6 to the Insolvency Act 1986.

Tainted gifts

4.81 Tainted gifts are dealt with differently depending on whether or not the court has found that the defendant had a criminal lifestyle.

4.82 If the defendant has a criminal lifestyle, the gift will be deemed to be tainted if it was made by the defendant at any time after the relevant day.[162] A gift will also be tainted if it was obtained by the defendant as a result of, or in connection with his general criminal conduct or represented in the defendant's hands property obtained by him as a result or in connection with his general criminal conduct.[163]

4.83 If the defendant does not have a criminal lifestyle, the gift will be treated as tainted if it was made by the defendant at any time after the date on which the offence was committed, or if his particular criminal conduct consists of two or more offences and they were committed on different dates, the date of the earliest.[164]

4.84 If the defendant transfers property to another person for a consideration whose value is significantly less than the value of the property at the time of the transfer, he is to be treated as making a gift.[165] The value of the tainted gift is then considered to be the difference between the value of the gift and the value the recipient paid for it.[166]

4.85 A gift is considered to be recoverable property even in circumstances where a defendant has no right to extract money from the recipient of it or the recipient of the gift no longer holds it or property to its value.[167]

Piercing the corporate veil

4.86 Property held by a company owned or controlled by the defendant is not prima facie recoverable property as it is not held by the defendant. This is because a legally incorporated company is treated as if it was an independent person with rights and liabilities appropriate to itself.[168] The case of R v Gokal[169] helpfully sets out the general principles:

'It is necessary to… ask what is meant by asserting that an individual is interested in corporate assets. An individual who is managing director and principal shareholder of a company has two obvious interests in the company; as a potential unsecured creditor for unpaid salary… and as a shareholder. …But if the company's affairs are run honestly…, there will be no room for doubt as to what the company owns, and what proprietary or personal claims the individual has against the company'.[170]

4.87 The position is entirely different where a defendant uses the corporate structure as a device to conceal his criminal activities and runs the company as if its assets were his own.

'However, there are cases in which a single individual runs a company or a group of companies as if its assets were his own, without regard to any of the statutory requirements and restrictions which are the price of incorporation with limited liability. There is a range of cases from simple ignorance and incompetence on the part of individuals (who are not dishonest but should never have been made company directors) at one end, to large-scale fraud and dishonesty at the other end…'.[171]

4.88 Once the corporate veil is pierced, the money held by the company becomes the property of those controlling the company.[172]

Trusts

4.89 A trust is not a legal person but a legal structure which incorporates a bundle of obligations. It binds a trustee to deal with property over which he has control for the benefit of the beneficiaries. Where a trust is a sham trust, the property will be recoverable. The definition of 'sham' is found in Snook v London and West Riding Investments Ltd:[173]

'For acts or documents to be a 'sham,' with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.'[174]

An example of a sham trust arising in a criminal context can be seen in the case of R v Stannard.[175]

4.90 When the defendant's beneficial interest is held under a genuine trust, its recoverability will depend on the nature of the interest. In R v Walbrook & Glasgow[176] the defendant's contingent interest in his grandmother's property was held to constitute an interest in trust property. The property was recoverable property because it constituted a chose in action capable of being assigned before the contingency occurred. It therefore amounted to a clearly identifiable future entitlement.

4.91 However, where the beneficial interest is in a discretionary trust, it is unlikely to be considered realisable property. This is because of the nature of discretionary trusts.

'A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit. The trustees must exercise their discretion as and when the income becomes available, for they have no power to bind themselves for the future. The beneficiary thus has no more than a hope that the discretion will be exercised in his favour'.[177]

Hidden assets

4.92 Where there is a hearing to determine the difference between the benefit the defendant has received and the amount that can be realised, the burden is on the defendant to prove to the civil standard the amount of his recoverable property.[178] In R v Barnham, the court rejected submissions that the prosecution was required to provide a prima facie case of the existence of realisable assets. Once the prosecution has established the benefit, the burden shifts to the defendant to show that the realisable assets are less then the benefit. Therefore, there is no requirement upon the prosecution to show a prima facie case that the defendant has hidden assets.

Valuation

4.93 The value of property held by the defendant is its market value at that time.[179] Where the property has been obtained by a person as a result of his criminal conduct or is a tainted gift, its value is the greater of the following:[180]

(a) The value of the property at the time the person obtained it adjusted to take account of later changes in the value or money; or

(b) The value at the date of the confiscation hearing including any property which directly or indirectly represents it in his hands.

Rules of evidence

4.94 When deciding whether or not to make a confiscation order, the court must decide any question arising on the balance of probabilities.[181] As the Court of Appeal explained in R v Silcock and Levin[182] the ordinary rules of criminal evidence do not apply since the confiscation hearing is an extension of the sentencing hearing and more in the nature of civil proceedings.

4.95 When determining confiscation issues, the court will ask the prosecutor to give a statement of information including the matters the prosecutor believes are relevant in deciding the material issues – whether the defendant has a criminal lifestyle, whether he has benefited from his general or particular criminal conduct and what his benefit from the conduct was.[183] The statement will be served on the defendant who will then be ordered by the court to indicate the extent to which he accepts or denies each allegation in the statement and to give any particulars of any matters he proposes to rely on.[184] Where the defendant fails without reasonable excuse to comply with these orders, the court may draw such inferences as it believes is appropriate.[185]

Agreed confiscation

4.96 It is sensible for the prosecution and the defence to consider the issue of confiscation when agreeing the basis of a guilty plea, although the court is not obliged to follow the agreement in every case.[186] However, once a basis of plea has been agreed, the statutory assumptions can only be applied to the benefit if they are not inconsistent with the basis of plea.[187]

Enforcement

4.97 Confiscation orders are enforced by the court as if the amount ordered to be paid were a fine imposed on the defendant by the court making the confiscation order.[188] The order is therefore enforced by the magistrates' court. Where assets were identified which a defendant acquired after the original order, and the order is therefore varied, there is judicial discretion to re-fix the time for payment.[189]

4.98 When the court makes a confiscation it must also fix a term of imprisonment in default of payment.[190] The terms of imprisonment are the same as for non-payment of a fine and are set out in s 139(4) of the Powers of Criminal Courts (Sentencing) Act 2000.

4.99 The prosecution may apply for the appointment of a receiver to the court if the confiscation order is made but not satisfied and not subject to appeal.[191] The court may then confer a range of powers on the receiver in relation to the realisable property in order to recover the amount specified in the confiscation order.[192] A power to manage specified property may be exercised and this can include selling the property where, for example, this is necessary to maximise its value.[193]

Civil recovery

History

4.100 The purpose of POCA 2002 was 'to take the profit out of crime and dismantle and disrupt the organised crime empires by removing the money that is their motivation and their lifeblood.'[194] To achieve this purpose the Assets Recovery Agency (ARA) was created by POCA 2002.[195] Whilst its functions included all areas of asset recovery, (ie confiscation, civil recovery, taxation, enforcement of confiscation orders) its principle function was the conduct of civil recovery proceedings.

4.101 However, in the four years since it was created, ARA's performance was persistently criticised. On 11 January 2007 the UK Government announced it was merging ARA with SOCA which had been created in 2005 and that SOCA would take over ARA's asset recovery functions.[196] Section 74 of the Serious Crimes Act 2007 abolished ARA and Part 2 of Sch 8 enabled its civil recovery powers to be exercised by SOCA, the Director of Public Prosecutions, the Director of Public Prosecutions for Northern Ireland, the Director of Revenue and Customs Prosecutions and the Director of the Serious Fraud Office.[197]

Purpose

4.102 Part 5 of POCA 2002 deals with the recovery by civil action of property obtained through unlawful conduct. Its purpose is to enable:

(a) An enforcement authority to recover, in civil proceedings before the High Court, property which is, or represents, property obtained through unlawful conduct.[198]

(b) Cash which is, or represents, property obtained through unlawful conduct, or which is intended to be used in unlawful conduct, to be forfeited in civil proceedings before a magistrates' court.[199]

4.103 It is not always possible to commence criminal proceedings where, for example, the criminal offender has kept himself distant from the crime he is controlling or is outside the United Kingdom. Also, there are occasions where a criminal dies leaving recoverable assets or simply transfers them to a third party. In such situations, where the Crown Prosecution Service have decided it is not in the public interest to prosecute, the use of civil recovery to recover the proceeds of unlawful conduct will be considered.

4.104 The relationship between civil recovery and criminal proceedings has been discussed in several cases. It is clear that the two types of proceedings are considered to be distinct and separate. In Director of the Assets Recovery Agency v Green[200] the argument that it would be wrong to bring civil recovery proceedings when criminal proceedings had been stayed as an abuse of process was rejected by the High Court. Applying this decision the Court of Appeal held in ARA v Olupitan[201] that when bringing civil recovery proceedings, ARA was not bound by concessions the prosecution had made in the criminal proceedings.

Interim receiving orders and property freezing orders

4.105 When an enforcement authority brings proceedings for a recovery order in the High Court, it may first apply for an interim receiving or property freezing order.[202] An interim receiving order is an order for the detention, custody and preservation of property and the appointment of an interim receiver.[203] A property freezing order is an order that prohibits any person whose property the order specifies from dealing with that property in any way.[204] If appropriate, the application may be made without notice.[205]

4.106 An interim receiving or property freezing order will only be made where there is a good arguable case that the property to which the application relates includes recoverable property and, if any of it is not recoverable property, it is associated property.[206] 'Associated property'is defined as being:

(a) any interest in the recoverable property;

(b) any other interest in the property in which the recoverable property subsists;

(c) if the recoverable property is a tenancy in common, the tenancy of the other tenant;

(d) if the recoverable property is part of a larger property, but not a separate part, the remainder of that property.[207]

4.107 The claimant must show that there is a good arguable case that unlawful conduct occurred and that property was obtained as a result. A claimant is not required to establish a good arguable case that property was obtained through a specific type of criminality although the general type of criminality needs to be identified.[208]

4.108 As interim and freezing orders are often applied for ex parte there is a duty upon the claimant to make full and frank disclosure to the High Court. Where there has been a failure to disclosure material facts, whether innocent or intentional, an order will be rescinded only if the material would have affected the judge's decision on the application. In Director of the Serious Fraud Office v A[209] Hughes LJ explained:

'The proper approach is to consider whether the public interest does or does not call for the order to stand, now that the true position is known, and taking into account the previous failure of disclosure. Whether the non-disclosure was deliberate or accidental will be a material factor, although not necessarily determinative.'[210]

Exclusions

4.109 Exclusions from the order may be made when the interim order or property freezing order is made or on an application to vary it.[211] The High Court has a general discretion to make exclusions, normally to enable a person to meet his reasonable living expenses or carry on a trade, business, profession or occupation.[212] A property freezing order may also exclude property from the order or make exclusions from the prohibition on dealing with the property to which the order applies.[213] Exclusions may be made for meeting legal expenses providing the exclusion is limited to reasonable legal expenses reasonably incurred, specifies the total amount that may be released for legal expenses in pursuance of the exclusion, and is made subject to the required conditions.[214]

Powers of interim receivers

4.110 An interim receiving order may authorise, or require, an interim receiver to exercise any powers set out in Sch 6 to POCA 2002 or take any other steps the court thinks is appropriate in order to secure the detention, custody or preservation of the property to which the order applies.[215] The extensive powers set out in Schedule 6 include the power to:

(b) Obtain information or require a person to answer questions. This power has effect in spite of any restriction on the disclosure of information and any answer given may not be used in evidence against the person in criminal proceedings.[217]

(c) Enter any premises to which the order applies and carry out a search or inspection and make a copy, photograph or other record of anything described in the order.[218]

(d) Manage the property, which includes the power to sell or otherwise dispose of the property where the assets are perishable or ought to be disposed of before their value diminishes. If the property includes a trade or business, the receiver may carry on the trade of business.[219]

4.111 The interim receiving order must also require the interim receiver to take any steps the court thinks are necessary to establish whether or not the property in the order is recoverable, or associated, property and whether any other property, in relation to the same unlawful conduct, is recoverable, and if it is, who holds it.[220]

4.112 The High Court may also order the receiver to exercise any management powers in relation to the property[221] or take any other steps that the court thinks appropriate.[222]

4.113 Where a respondent wishes to challenge the findings of an interim receiver, he may apply for money to be excluded from the order under s 252 of POCA 2002 to pay for the expense of a forensic accountant. In Director of Asset Recovery Agency v Fleming[223] Morgan J set out some considerations when considering whether the expense of a forensic accountant was justified. First, if a party considers the interim receiver has considered something irrelevant, or not considered something relevant, he should first request of the receiver, in writing, that the matter be investigated. The receiver should then make a further report to the court stating her conclusions as to the matters raised. If a party wishes to explore the methodology or findings of the report, he should request a meeting with the interim receiver. All interested parties should be invited and minutes kept for the court. If a party then wishes to challenge the report, he should apply to the court to exclude monies for legal expenses for the retention of a forensic accountant with a witness statement setting out which aspects of the report he takes issue with. The court, upon receipt of the application and any replying witness statements should then reach a determination as to whether there are any issues on which it would be reasonable to incur the expenditure. If it decides the expenditure is necessary, it should set out the specific areas on which the party will be entitled to have his own expert witness investigate.[224]

Civil recovery order

4.114 Proceedings for civil recovery may be commenced by an enforcement authority[225] in the High Court against any person holding recoverable property by issuing a claim form under CPR Part 8.[226] The burden of proof which lies on the claimant is the balance of probabilities.[227]

4.115 Recoverable property is property obtained through unlawful conduct.[228] Property includes money, all forms of property real or personal, heritable or moveable, things in action and other intangible or incorporeal property.[229] 'Unlawful conduct' is defined as having a dual criminality test. It is conduct occurring in the United Kingdom that is unlawful under the criminal law of that part of the country or conduct occurring outside the United Kingdom that would be unlawful in that place and in the United Kingdom.[230] In Director of the Assets Recovery Agency v Virtosu[231] a conviction in France was held to be satisfactory proof of unlawful conduct under French criminal law so as to satisfy s 241 of POCA 2002.

4.116 'Property obtained through unlawful conduct' is property obtained by or in return for the conduct.[232] In Director of the Assets Recovery Agency v Green[233] the High Court held that it was unnecessary in civil proceedings for a recovery order to allege the commission of any specific criminal offence. All that is necessary is to set out the matters that were alleged to constitute the particular kind or kinds of unlawful conduct by or in return for which the property had been obtained.[234] However, the court made clear that a claim for civil recovery could not be sustained solely on the basis that a defendant had no identifiable lawful income to warrant the lifestyle and purchases of that defendant.

Financial threshold

4.117 In order to ensure proceedings are not taken in trivial cases, the enforcement authority may only start proceedings for a recovery order if the aggregate value of the recoverable property is £10,000 or more.[235] This threshold applies to recovery and interim proceedings.[236]

Tracing the property

4.118 Where recoverable property has been passed to other persons or converted into another form, it may still be recoverable. There are three situations where the court may trace recoverable property:

(a) Recoverable property which retains its original identity may be followed into a person's hands where it has been disposed of or passed to someone else.[237] If it has been passed on several times it can be followed along the chain of transactions.[238]

(b) Where the property has been converted, the property which represents the original property is recoverable.[239] This property may also be followed into the hands of any person who obtains it.[240]

(c) Where recoverable property is mixed with other property, the portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.[241]

The trustee for civil recovery

4.119 If the High Court is satisfied that property is recoverable, it must make a recovery order, vesting the recoverable property in a trustee for civil recovery.[242] The trustee's functions are to secure the detention, custody or preservation of any property vested in him by the order and, in the case of property other than money, to realise the value for the benefit of the enforcement authority.[243] He is to realise the value of the property, so far as is practicable, in the manner best calculated to maximise the amount payable to the enforcement authority.[244] In order to do this trustees are vested with a wide range of powers which are set out in Sch 7 to the Act. These include the power to:

(d) carry on or defend any legal proceedings in respect of the property;[248]

(e) make any compromise or other arrangement in connection with a claim relating to the property.[249]

The exceptions

4.120 There are two exceptions where, even if the property is recoverable, a civil recovery order cannot be made. First, the High Court cannot make any provisions in a recovery order which are incompatible with any rights in safeguarded by the European Convention of Human Rights.[250] Secondly, the High Court cannot grant the order if it would cause detriment to a person who obtained the property in good faith. The conditions for fulfilling this are:[251]

(a) The respondent obtained the recoverable property in good faith.

(b) He took steps before or after obtaining, or believing he was going to obtain, the property, which he would not have taken if he had not obtained it.

(c) When he took the steps, he had no notice that the property was recoverable.

(d) If a recovery order were made, in respect of the property, it would be detrimental to him.

(e) It would not be just and equitable to make a recovery order.

Funding for legal expenses

4.121 All High Court proceedings for civil recovery are civil proceedings for which Community Legal Service funding is available subject to the respondent meeting the required means and merit tests.[252] Provision has also been made for legal expenses to be funded by way of exclusion from monies held under an interim receiving order.[253]

Limitation

4.122 Under s 27A of the Limitation Act 1980 an action for recovery of property obtained through unlawful conduct has a limitation period of 12 years from the date on which the cause of action accrued.[254] However, under s 32 of the Limitation Act 1980 the limitation period can be postponed in cases of fraud, deliberate concealment or mistake.

4.123 In Szepietowski v Director of Assets Recovery Agency[255] the Court of Appeal considered whether s 32 of the Limitation Act 1980 could be applied in the case of mortgage fraud the proceeds of which were alleged to provide grounds for making of a civil recovery order. Considering the point at the interim stage, the Court held that, depending on the facts which would become clear at a substantial trial, where a fact relevant to the Director's right of action had been deliberately concealed from him during the course of his investigations, the limitation period would be postponed until after the concealment had been discovered.[256]

Settlement

4.124 Under s 2A of POCA 2002 the enforcement authorities must exercise their authority in the ways in which they consider are best calculated to contribute to the reduction of crime. Whilst this will usually involve some form of forced confiscation of assets, there will be occasions where a settlement is the best option available. Parliament appears to have considered settlement a possibility since it made provision for the High Court to stay proceedings where a consent order has been agreed by the parties.[257]

4.125 In September 2004 ARA issued guidance on the factors it would take into account when deciding whether to mediate a settlement. Unlike other guides, which can now be found on the SOCA website, the guidance for settlement is no longer available, suggesting that it is probably being updated. However, it is included here to offer some guidance.

4.126 In considering whether to settle a case, the Director will act in ways which support the aims of the legislation and are not capable of being interpreted in ways which would lead to those aims being undermined. The Director will take into account the specific circumstances of each case including, inter alia:

(a) the scale and nature of the criminality;

(b) the likely disruption by settlement as opposed to otherwise of an organised criminal enterprise and the reduction of crime;

(c) the value and nature of the assets thought to have been derived by the respondent;

(d) the value and nature of the assets subject to recovery or tax action;

(e) the assets available to the respondent;

(f) the amount likely to be recovered if the matter proceeds;

(g) the interests of third parties.

4.127 In practice, ARA was also willing to utilise the mediation process in order to achieve a settlement without recourse to the court. This occurred in the Creaven[258] case where, in the settlement announced in October 2006, Creaven agreed to hand over £18.5 million and €176,000, the ownership of his luxury villa in Marbella, his flat in Knightsbridge and four racehorses. However, Creaven made no admission of liability in ARA's civil proceedings.

Third party interests

4.128 POCA 2002 seeks to divide recoverable property from legitimately obtained property owned by third parties who have innocently combined themselves with a criminal by separating the recoverable property from 'associated property'. 'Associated property' is property which is not itself recoverable property but could be described as either:

(a) any interest in the recoverable property;

(b) any other interest in the property in which the recoverable property subsists;

(c) if the recoverable property is a tenancy in common, the tenancy of the other tenant;

(d) if the recoverable property is part of a larger property, but not a separate part, the remainder of that property.[259]

4.129 Where recoverable property is mixed with other property, ie associated property, the portion which is attributable to the recoverable property represents the property obtained through unlawful conduct.[260] This means that, unlike in criminal confiscation proceedings, the full amount does not become recoverable. Examples of mixing include increasing funds held in a bank account, part payment for the acquisition of an asset, restoration of or improvement to land and holding a leasehold interest in the property to acquire the freehold.[261]

Compatibility with ECHR

4.130 The compatibility of the civil forfeiture regime with the European Convention of Human Rights was considered in R(on the application of the Director of the Assets Recovery Agency) v Jia Jin He (No2).[262] Applying the decision in Director of the Assets Recovery Agency v Walsh[263] and the Italian case of M v Italy,[264] Collins J held that the civil forfeiture regime did not breach Article 6 of the European Convention of Human Rights since the proceedings did not find the defendant guilty of any criminal offence. The regime, the High Court held, represented a proportionate response to the activities of organised crime groups and therefore did not breach Article 1 of the First Protocol (which protects property rights) either.

Recovery of cash in summary proceedings

Introduction

4.131 Chapter 3 of Part 5 of POCA 2002 has widened the ability of the courts and police or customs offices to seize cash during searches. Under the previous law there was no power to forfeit cash unless a person was prosecuted.

Power to search

4.132 Where a customs officer, constable or accredited financial investigator[265] is lawfully[266] on any premises and has reasonable grounds for suspecting that there is cash on the premises which is recoverable property or intended to be used in unlawful conduct, and the amount is more than £1,000,[267] he may search the premises for cash.[268] Similarly if an officer or investigator has reasonable grounds for suspecting that a person is carrying the cash, he may, as far as he thinks it necessary of expedient, require the person to permit a search of any article he has with him or a search of his person.[269]

4.133 Cash is defined as notes and coins in any currency, postal orders, cheques of any kind, including travellers' cheques, bankers' drafts, bearer bonds and bearer shares.[270] Recoverable property is given the same definition as in civil recovery.[271]

Prior approval

4.134 The power to search may only be exercised with the appropriate approval, unless, in the circumstances, it is not practical to obtain that approval before exercising the power.[272] The appropriate approval means the approval of a judicial officers (a justice of the peace, or in Scotland, sheriff) or, if that is not practical, the approval of a senior officer.[273] A senior officer is a senior police officer, customs officer equivalent or accredited financial investigator equivalent.[274]

Power to seize

4.135 A customs officer, constable or accredited financial investigator may seize cash above the minimum amount[275] if he has reasonable grounds for suspecting it is recoverable property or intended for use in unlawful conduct.[276] He may seize all the cash, even if the suspicions related to only part of it, if it is not reasonably practical to seize only that part.[277]

4.136 In Chief Constable of Merseyside v Hickman[278] it was held that money seized under the Police and Criminal Evidence Act 1984 could be re-seized under POCA 2002 following the conclusion of the criminal proceedings that led to the original seizure providing the amount of cash is above the minimum specified amount.

Detention of seized cash

4.137 Providing reasonable grounds for suspicion continue, seized cash may initially be detained for 48 hours.[279] This does not include weekends, Christmas Day, Good Friday or bank holidays.[280] A magistrates' court (or in Scotland a sheriff) may extend the period of detention for a maximum of three months, beginning with the date of the order.[281] Subsequent orders may further extend the detention for up to two years, beginning with the date of the first order.[282]

4.138 The conditions which have to be met in order to obtain an order are that there are reasonable grounds for suspecting that the cash is recoverable property or intended to be used in unlawful conduct and that either:

(a) its continued detention is justified whilst its intended use is further investigated or consideration is given to bringing proceedings against any person for any offence with which the cash is connected:[283] or

(b) proceedings against any person for an offence with which the cash is connected have been started and not concluded.[284]

4.139 Where cash is detained for more than 48 hours, it must at the first opportunity be paid into an interest-bearing account and the interest accruing added to it on its forfeiture or release.[285] When the money is paid into the account, the part to which the suspicions do not relate must be released.[286]

4.140 The person from whom the cash was seized may apply to have the cash released. The magistrates may direct the release of all, or any part, of the cash if the conditions for detention are no longer met.[287]

Power to forfeit seized cash

4.141 A magistrates' court, on receipt of an application by a customs officer, constable or accredited financial investigator, may forfeit the cash detained or any part of it if it is satisfied that it is recoverable property or intended by any person for use in unlawful conduct.[288] The standard of proof required in the proceedings is the civil standard.[289] An appeal against the decision may be made to the Crown Court within 20 days of the original decision.[290] After the period within which an appeal may take place, the cash is forfeited and, with any interest accrued on it, placed into the Consolidated Fund.[291]

4.142 Where forfeiture proceedings are pursued in parallel with a criminal prosecution, the application for forfeiture will usually be adjourned until the criminal proceedings have been completed. This is to ensure that the defendant is not put in the unfair position of giving evidence on oath about matters that could affect his criminal trial before it took place.[292]

4.143 A person who claims that detained or forfeited cash, or any part of it, belongs to him may apply to a magistrates' court for the cash to be released to him.[293] The application may be made during proceedings for detention, forfeiture or at any other time.[294] The court will release the cash to the applicant where it is satisfied that the applicant was deprived of cash, or property that represents it, the property he was deprived of was not, immediately before he was deprived of it, recoverable property and the cash belongs to him.[295]

4.144 When no forfeiture order is made in respect of cash which has been detained, the person to whom the cash belongs, or from whom it was seized may make an application to the magistrates' court for compensation.[296] If the court is satisfied that, taking into account the interest paid under s 296 of POCA 2002, the applicant has suffered loss as a result of the detention of the cash, and the circumstances are exceptional, the court may order compensation to be paid.[297] The amount of compensation will be the amount the court thinks reasonable having regard to the loss suffered and any other relevant circumstances.[298]

Code of Practice

4.145 In line with POCA 2002, s 292, the Secretary of State has established a code of practice in connection with the exercise of cash recovery powers. This code, entitled Code of Practice for Constables and Customs Officers Under POCA 2002, came into effect in on 6 April 2008.[299] The Code is available at every police station and should always be referred to by any authority planning or undertaking cash recovery.

ECHR compatibility

4.146 In the case of Butler v United Kingdom[300] the previous cash forfeiture scheme under the Drug Trafficking Act 1994 was unsuccessfully challenged. The ECtHR held that there was no breach of the European Convention of Human Rights because as criminal charges were never brought against the applicant, the forfeiture measures were preventative measures, designed to take out of circulation money which was presumed to be bound up with the international trade in illicit drugs and could not be compared with criminal sanctions.

Taxation

4.147 Under Part 6 of POCA 2002, SOCA[301] can assume the taxation functions of Her Majesty's Revenue and Customs in order to recover proceeds of crime. Tax legislation is applied to the income and a tax assessment is then raised against the respondent. It was originally considered that these powers would be used as a last resort when criminal proceedings could not be brought and, for example, there is no identifiable property that could be recovered in civil proceedings. However, increasingly these powers have been used simultaneously with civil recovery and criminal investigations.

4.148 Money earned from criminal enterprises is usually not declared and it is hoped that enforcing the payment of tax, along with any interest and penalties in respect of non-payment, may discourage such enterprises.

General functions of taxation

4.149 Part 6 is split between two different functions: the Revenue's general functions of taxation of income and capital gains and its inheritance tax functions.

4.150 Providing the qualifying condition is satisfied, SOCA may serve on the Her Majesty's Revenue & Customs a notice stating its intention to carry out, in relation to a specified person or company and in respect of a specific period, general Revenue functions.[302] The functions should also be specified in the notice. The qualifying condition is that SOCA has reasonable grounds to suspect that income arising, or a gain or profits accruing to the specified person or company in respect of a chargeable period is chargeable to income tax, corporation tax or as a chargeable gain and arises or accrues, wholly or partly, directly or indirectly, as a result of criminal conduct.[303]

4.151 Criminal conduct is conduct which constitutes an offence in any part of the United Kingdom or would constitute an offence in any part of the United Kingdom if it occurred there.[304] However, it does not include conduct constituting an offence relating to a matter under the care and management of the Revenue Board.[305]

4.152 The general Revenue functions are functions which relate either to income tax, capital gains tax, corporation tax, national insurance contributions, statutory sick pay, statutory maternity pay, statutory paternity pay, statutory adoption pay or student loans.[306] The various statutory pays and students loans are construed in accordance with the Social Security Contributions and Benefits Act 1992.[307]

4.153 The following functions are not included in general Revenue functions;

(c) the function of authorising an officer to order the delivery of documents or of giving information under Taxes Management Act 1970, s 20BA;[310]

(d) functions relating to any requirement which is imposed on the company in its capacity as an employer and relates to a year of assessment which does not fall wholly within the period specified;[311]

(e) Functions relating to any liability to pay Class 2 contributions in respect of a period which does not fall wholly within the year or years of assessment where the individual is a self-employed earner.[312]

4.154 There is no definition in POCA 2002 of 'reasonable grounds for suspicion'. In O'Hara v Chief Constable of Royal Ulster Constabulary[313] the House of Lords considered the meaning to 'reasonable grounds for suspicion' in relation to a constable's statutory arrest power. The House held that a court should assess what was actually in the constable's mind and whether his belief was reasonable on an objective basis. This was confirmed in Khan v Director of Asset Recovery Agency[314]. Khan also provided a useful insight into the kind of evidence the tribunal considered might satisfy the qualifying condition. This will include evidence of significant cash deposits made without explanation and the existence of income which had not been disclosed to Her Majesty's Revenue & Customs ('HMRC').

4.155 It is perhaps worth noting though that under the civil recovery regime in Part 5 of POCA 2002, a lack of explanation for properties received would not, on its own, be sufficient evidence to show that the property had been received as a result of criminal activities.[315] As an alternative route, SOCA could proceed to recover tax on the assets under Part 6 of POCA 2002.

Inheritance tax functions

4.156 Providing the qualifying condition is met, SOCA may serve on HMRC a notice which specifies the transfer of value and states that SOCA intends to carry out HMRC inheritance tax functions in relation to this transfer.[316] The qualifying conditions here are that SOCA has reasonable grounds to suspect that there has been a transfer of value within the meaning of the Inheritance Tax Act 1984 and the value transferred by the transfer of value is attributable (in whole or part) to criminal property.[317] Service of this notice will vest in SOCA the HMRC inheritance tax functions in relation to the transfer.[318] It is irrelevant that the transfer of value is suspected to have occurred before or after the passing of POCA 2002.[319]

4.157 Where the inheritance tax concerns a settlement and the qualifying condition is satisfied, SOCA may serve on the Board a notice which states that SOCA intends to carry out the HMRC inheritance tax functions in relation to the specified settlement.[320] The qualifying condition for this is that SOCA has reasonable grounds to suspect that all, or part, of the property comprised of the settlement is relevant property for the purposes of Chapter 3, Part 3 of the Inheritance Tax Act 1984 and is criminal property.[321]

Appeals

4.158 An appeal against SOCA's exercise of general HMRC functions[322] can be brought to the Tax Tribunal.[323]

Source of income

4.159 For the purposes of any functions vested in SOCA by virtue of
Part 6 of POCA 2002, it is immaterial that SOCA cannot identify a source for any income.[324] It has been suggested that this will be a draconian weapon with which to fight crime, especially as more cases are referred to SOCA by Her Majesty's Revenue & Customs.[325]

ECHR Compatibility

4.160 The case of Khan[326] confirmed that tax recovery proceedings under Part 6 of POCA 2002 do not involve any criminal sanctions and therefore do not engage Article 6 of the European Convention of Human Rights. Similarly, the court held that as a taxpayer, the respondent's position under POCA 2002 was in the same position as if he had been issued with an HMRC assessment and therefore
Article 1 of the First Protocol was not breached either.

[7] A disclosure order is an order requiring a defendant to disclose all his realisable assets. A repatriation order is one that requires a defendant, or third party, holding realisable property to bring it within the jurisdiction of the court.

[23] POCA 2002, s 41(3)(a). In RCPO v Stodgell [2008] EWHC 2214 (Admin) the court varied terms of a confiscation order to allow a husband access to restrained assets so that he might fund legal costs arising out of a pending dispute under the Matrimonial Causes Act 1973 and the Children Act 1989. The court also made provision for the payment of his wife's reasonable legal costs arising in the ancillary relief proceedings.

[39] Monies held in the client account of a solicitor's firm may be transferred to the office account to pay fees owing without breaching the restraint order: Mitchell v RCPO & Allad [2008] EWCA Crim 1741.

[40] POCA 2002, s 69(3)(a); In SFO v Lexi Holdings plc (in Administration) [2008] EWCA Crim 1443 the Court of Appeal considered whether to vary a restraint order on the application of a company who had a judgment to enforce against a restrained defendant. It concluded that if the court could see that a confiscation order, existing or prospective, related to an amount that the restrained defendant had ample assets to meet, then it might be allowed that a debt to a third party creditor could be allowed to be paid from the restrained assets. However, unless this was the case, the court could not vary a restraint order to enable a debt to a third party to be paid.

[135] R v Smith [2001] UKHL 68. Similar sentiments can be found in CPS v Rose: R v Whitwam [2008] EWCA Crim 239 where a defendant was liable for the full value of stolen property. The fact that the property had been restored to its true owner was irrelevant.

[144] See paragraph 3 above. It should be noted here that where property includes a mortgage, the mortgage should be deducted when considering the defendant's benefit rather than later, when determining the recoverable amount: R v Milroy Nadarajah [2007] EWCA Crim 2688.

[148] See the recent case of In the matter of B [2008] EWHC 690 (Admin) where an application for the appointment of an enforcement receiver to sell a matrimonial property to settle an outstanding confiscation order was granted in circumstances where on the evidence the husband's gift to his wife of 50% share in the house was caught as a tainted gift.

[258] Dylan Creaven was acquitted of involvement in large scale VAT fraud. His case was then referred to ARA who successfully applied for an interim freezing order: Creaven v Director of the Assets Recovery Agency [2005] EWHC 2726 (Admin); it was after this that the settlement was mediated.

[265] In Scotland, an accredited financial investigator does not have the powers to search or seize cash: POCA 2002, ss 289(5)(c) and 294(4).

[266] No right of entry is conferred by POCA 2002, s 289. The officer in question, must already be lawfully on the premises: Code of Practice for Constables and Customs Officers Under POCA 2002.

[267] POCA 2002 states the minimum amount. The minimum amount is specified by the Secretary of State. It was originally £10,000 before being reduced to £5,000 and then £1,000 most recently with effect from 31 July 2006: POCA 2002 (Recovery of Cash in Summary Proceedings: Minimum Amount) Order 2006 (SI 2006/1699).

[289] In Butt v HM Customs & Excise [2001] EWHC (Admin) 1066, the court rejected a submission that, under the old forfeiture provisions of the Drug Trafficking Act 1994, it should apply a standard of proof akin to the criminal standard.

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